How can insurers help drive the resilience analytics revolution?

Insurers can play a key role in advancing resilience analytics, explains Robert Muir-Wood, RMS chief research officer. The application of risk quantification can help make communities, cities and countries more resilient, better able to withstand their hazards and lower their levels of risk.

The 2015 Sendai Framework for Disaster Risk Reduction, established by the United Nations Office for Disaster Risk Reduction (UNISDR), placed a central focus on which policies and actions will reduce risk.

“The [RMS] meeting testified that governments – local, regional and national – are beginning to explore their own disaster risks.”

The first of the four priorities within the Sendai framework is “…an understanding of disaster risk in all its dimensions of vulnerability, capacity, exposure of persons and assets, hazard characteristics and the environment.”

In May 2016 in Miami, RMS organized the first international meeting on “Resilience Analytics,” bringing together city chief resilience officers and others who work on risk quantification and reduction. The meeting testified that governments – local, regional and national – are beginning to explore their own disaster risks.

For insurers and for city officials, the priority is the same – quantify the risk. But such quantification can be challenging without data.

Insurers already play a vital role in resilience. When a disaster strikes, insurance provides a source of funds to help homeowners and businesses pick up the pieces and carry on.

Although they might not see themselves as being in the “resilience” business, insurers collect far more detailed and precise information on property damage than any other public or private sector organization. This claims data can provide deep insights into what determines damage – whether it is the vulnerability of a particular building type or the fine scale structure of flood hazard.

At a recent Organization for Economic Co-operation and Development meeting in Paris on flood risk insurance we discussed new initiatives in Norway, France and Australia that harness and apply insurers’ claims experience to inform urban resilience strategies.

Norway claims data improves flood risk

In Norway, where it is the norm for insurers to share their claims data with the Natural Perils Pool, costs of catastrophes are pooled across private insurance companies. In 2008, this sharing process was made more efficient through the adoption of a standardized approach to classifying and reporting address-level exposure and claims data covering all private, commercial and public buildings. Once the classifications were consistent it became clear that almost 70 percent of flood claims were driven by urban flooding from heavy rainfall.

“Although they might not see themselves as being in the ‘resilience’ business, insurers collect far more detailed and precise information on property damage than any other public or private sector organization.”

Starting with a pilot of ten municipalities, including the capital Oslo, a group funded by the Norwegian finance and insurance sector took this address-level data to the city authorities to show exactly where losses were concentrated, so that the city engineer could identify and implement remedial actions, whether through larger storm drains or flood walls. As a result flood claims are being reduced.

French observatory applies lessons learned from claims data

Another example of harnessing claims experience to inform urban resilience strategies is from France, where
natural catastrophe losses are refunded through the national “cat nat system.” Property insureds pay an extra 12 percent premium to be
covered. All the claims data generated in this process now gets passed to the national Observatory of Natural Risks, set up after Storm Xynthia in 2010. This unit employs the data to perform forensic investigations to identify what can be learned about the claims and then works with municipalities to see
how to apply these lessons to reduce future losses. The claims data is not as comprehensive as it is in Norway, as data is only collected when the French state declares a “cat nat event,” which excludes some of the smaller and local losses.

Australian insurers forced council to act on their claims data

In Australia, frustrated insurers shared data with a city council after the town of Roma in Queensland had been inundated five times in six years. Political pressure was being applied on the insurers to offer universal flood insurance following major floods in 2011. Insurers mapped and published the addresses of the properties that had been repeatedly flooded and refused to renew the insurance cover unless action was taken. The insurers’ campaign achieved its goal, pressuring the local council to fund flood alleviation measures across the town.

These examples highlight how insurers can help cities identify where their investments will accomplish the most cost-effective risk reduction. All that’s

needed is an appetite to find ways to process and deliver claims data in a format that provides the key insights that city bosses need, without compromising concerns around confidentiality or privacy.

This is another exciting application in the burgeoning new field of resilience analytics.

Robert Muir-Wood is the chief research officer at RMS. He works to enhance approaches to natural catastrophe modeling, identify models for new areas of risk and explore expanded applications for catastrophe modeling.